Ontario’s Dual Challenge: Maximizing the benefits of automation for Ontario’s firms and people

By Creig Lamb and Sarah Doyle
May 3, 2018

In 2016, the Brookfield Institute released research finding that 42 percent of Canada’s labour market (and 41 percent of Ontario’s) is at high risk of being impacted by automation. But what does this really mean, in practice? In our new report, Better, Faster, Stronger: Maximizing the benefits of automation for Ontario’s firms and people, we dig into what prompts firms to automate, what’s holding them back, what this means for workers, and how this is playing out in different Ontario communities and sectors.

“People are equally scared, hopeful, don’t know, or don’t care. They are hopeful that with automation work can become more interesting, less physical, less dangerous. But they also fear their own ability to adapt—and if they will even be given the opportunity to adapt. It sparks a lot of emotional reactions.”University researcher in Kingston, Ont.

In this era of automation, Ontario faces a dual challenge. On the one hand, if firms do not automate, they may be left behind. Firms across Ontario continue to trail international competitors when it comes to adopting and implementing technology—putting them at a competitive disadvantage, which poses a threat to them as well as their workers. On the other hand, automation is already disrupting some jobs and, if the pace of adoption increases, a large number of workers will struggle with changing skills demands and possible job loss.

To date, studies on automation – including our own – have been helpful in setting the stage, but lack geographic and sectoral granularity as well as local context and insight. To provide a clearer picture of what’s actually happening in Ontario, we closely examined two sectors that are broadly representative of Ontario-wide trends—manufacturing, and finance and insurance—and explored the experiences and perceptions of Ontarians from different communities. This analysis, supported by the Government of Ontario, drew on relevant data, existing literature, interviews with over 50 stakeholders from these two sectors, and engagement of over 300 Ontarians through interviews, public consultations and an online survey. It was also informed by the guidance offered by an Expert Advisory Panel of 14 individuals with academic, technological, and industry expertise.

We began by asking ourselves: Why do firms automate?

As it turns out, the answer is quite complex. Existing models examining potential impacts of automation, based solely on the theoretical possibilities of technology, do not paint the full picture.

Any impacts that automation might have on jobs is predicated on a firm’s decision to automate and subsequently reskill, redeploy or lay off employees. These decisions are shaped by a number of internal and external factors. Ontario firms are under pressure to automate due, for example, to heightened international competition, changing consumer preferences, and opportunities to establish entirely new business models by leveraging consumer data.

Yet Ontario firms also face a number of barriers to adopting technology. We heard about barriers ranging from cost and risk aversion, particularly for smaller firms concerned about big investments in technologies that may become obsolete, to regulatory constraints and a lack of skilled talent to implement and operate new technology.

Lagging tech adoption may put workers at risk

In Ontario, low rates of technological adoption compared to international competitors may be putting employees at risk, as well as firms. For example, amongst Ontario manufacturers, there was a 5.5 percent drop in employment from 2001 to 2011, whereas the US and Germany— jurisdictions with higher rates of technology adoption—saw manufacturing employment drop by only 4.2 percent and 4 percent respectively.

“Businesses are shuttering because they don’t want to pay to automate and no one wants to buy the business because it’s so out of date. Any new owner needs to make a significant investment in technology in order to compete.”Stakeholder in Kingston, Ont.

When firms do automate, the impacts on workers can vary significantly

For workers with the right skills, automation can mean safer, and more interesting, challenging and productive work. Automation can also contribute to enhanced productivity, which can in turn enable firm expansion, and to new businesses. In the long-run, automation has tended to create more jobs than it destroys.

But in the short and medium term, certain workers in certain regions risk being left behind. Automation changes the skill requirements for jobs. If workers are unable to acquire new skills to adapt within their jobs, or to change jobs, it can result in a prolonged adjustment period where workers are left unemployed or underemployed.

In Ontario’s finance and insurance sector, for example, automation has contributed to improved efficiency, yet employment continues to rise. Between 2002 and 2016, the number of workers required to generate $1 million in output declined from 5.9 to 5.2, but employment actually expanded by 35 percent, or 85,350 workers. Increased deployment of technology in the sector has contributed to significant shifts in the skill requirements for workers—increasing demand for both soft and technical skills, including those related to client experience, sales, project and risk management, as well as software development and data analysis.

“There’s never been a better time to be a worker with special skills or the right education because these people can use technology to create and capture value.” However, “there’s never been a worse time to be a worker with only ‘ordinary’ skills and abilities to offer, because computers, robots and other digital technologies are acquiring these skills and abilities at an extraordinary rate.”Erik Brynjolfsson and Andrew McAfee, 2014

To ensure workers aren’t left behind, it is critical to identify which workers are most vulnerable to job displacement. Jobs that are susceptible to automation tend to be filled by workers with lower levels of education and, in the finance and insurance sector, they are disproportionately filled by women.

It is equally important to identify what opportunities might exist for displaced workers to transition into new jobs. To start to unpack this question, we looked for jobs with similar skill, experience and credential requirements, based on the US O*Net database, and identified potential pathways from jobs that are highly susceptible to automation, to jobs that are less susceptible and that pay the same or more. While it is also important to provide workers with support to retrain into entirely different jobs, it is worth identifying these shorter retraining pathways that, in theory, might allow workers to move between jobs—which could be in different sectors—with minimal retraining.

The dual challenge of automation requires a dual response: one that recognizes the importance of technology adoption to firm competitiveness, while at the same time ensuring that vulnerable workers don’t get left behind. We have proposed a high-level strategy in our report, which suggests actions that public, private, and non-profit leaders could take—ranging from investments in tech adoption to investments in lifelong learning, and from employer-led training consortiums to a job pathways tool that would help workers make informed decisions about training and employment. Together, these actions could help to realize a future in which Ontarians have the training supports needed to keep pace with changing technology, allowing both firms and workers to prosper. We welcome feedback, and are keen to work with partners to refine and advance this strategy.

For media enquiries, please contact Coralie D’Souza, Director of Communications, Events + Community Relations at the Brookfield Institute for Innovation + Entrepreneurship.

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